Amgen Inc (NASD: AMGN) has been named as the ''Top Dividend Stock of the Nasdaq 100'', according to Dividend Channel, which published its most recent ''DividendRank'' report. The report noted that among the components of the Nasdaq 100 index, AMGN...

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Amgen, the world’s first big biotech company (and, for a while, the largest), rode to prominence thanks to its drugs for treating anemia – a condition caused by the destruction of red blood cells, often as a result of cancer, cancer treatment, or kidney disease. In FY 2010, the company generated revenues of $15B with net earnings of $4.6B.[1]

Studies in 2007 found that patients taking Amgen’s drugs for anemia caused by cancer were more likely to die than patients who do not take these drugs; the drugs may have increased the migration rate or the rate of metastasis of the tumor. Since then, these drugs have been used less frequently and at lower doses in some therapeutic areas – particularly oncology, where Medicare's decision to restrict reimbursement as a result of safety issues has had a large impact on sales. These changes in prescription frequency have had a major effect on Amgen's revenues.[2]

Corporate Overview

Amgen generally sells its drugs directly to doctors and hospitals, who distribute them to patients and then bill payors for reimbursement. In most cases, the payor is the federal government via Medicare. As a result, Amgen is locked in a constant struggle with the government to ensure its drugs are paid for and at a high enough rate that doctors can use them profitably. Because of its focus on nephrology patients – who automatically qualify for Medicare – the percentage of Amgen’s revenues that are ultimately paid for by the federal government is higher than any other major pharmaceutical company. To secure its interests, Amgen has one of the strongest lobbying presences in Washington, D.C. of any pharmaceutical company.

Recent News

On Jan 24, 2011, Amgen announced the acquisition of BioVex, a privately held biotechnology company, for up to $1 billion. BioVex is testing a cancer therapy (currently in Phase III), OncoVex, which is a virus that kills tumors and stimulates the immune system to fight melanoma, head and neck cancer. [3]

Business Segments

Amgen is a biotechnology company who primarily markets recombinant protein therapeutic products for nephrology, supportive cancer care, and immunology.

Nephrology

Epogen ($2.52B in 2010)

EPOGEN® is Amgen’s original blockbuster drug, and the engine of much of the company’s sales.[4] It is used to treat kidney dialysis patients for anemia. It's patent protection is set to expire in 2013.[5]

Aranesp ($2.52B in 2010)

Aranesp is a longer-acting version of Epogen. It is mostly used outside of dialysis -- for patients in the earlier stages of kidney disease, with cancer, or for several other conditions.[4] Unlike Epogen, Aranesp does not have a monopoly in its markets. In the early years of the company, Amgen licensed the right to sell EPOGEN outside of dialysis to Johnson & Johnson (JNJ), which sells it under the brand name PROCRIT. Johnson & Johnson has since become Amgen's biggest competitor in this area. Procrit is identical to Epogen and is manufactured by Amgen.

Aranesp's revenue has steadily fallen since 2007, when studies in oncology patients found that patients taking Aranesp had shorter survival times than those who were not on the drug. These studied led to dramatic decreases in the use of the drug for cancer-related anemia.

Sensipar ($714M in 2010)

Launched in 2004, Sensipar's is Amgen's first small-molecule drug. It is used to treat secondary hyperparathyroidism, a mineral metabolism complication common in dialysis patients. Sensipar competes most directly with Abbott Laboratories (ABT)'s Zemplar and Genzyme (GENZ)'s Hectorol.

Oncology

Until recently, Amgen's oncology drugs were exclusively supportive care products. Aranesp, Neupogen, and Neulasta treat complications that arise from chemotherapy; they do not treat the cancer itself. This strategy has proved lucrative for Amgen. While "therapeutics" -- the term for drugs that treat cancer directly -- are usually only used for a subset of cancers, Amgen's products are used as part of therapy for multiple types of cancer. As a result, Amgen has one of the largest exposures to the oncology market of any pharmaceutical company. In recent years however, Amgen has put enormous resources into its oncology therapeutics pipeline, in an attempt to develop drugs that directly treat cancer itself rather than side-effects from cancer treatment. Therapeutics are seen as more essential to cancer care; as such, they command higher prices and there is less pressure from payors (such as insurance companies and the federal government) to reduce their reimbursement.

Neupogen & Neulasta ($4.84B combined revenue in 2010)

Neupogen and neulasta both treat a condition called neutropenia -- a weakening of the immune system as a result of chemotherapy. Patients on high-dose chemotherapy sometimes develop infections that can be life-threatening due to their inability to fight off germs. Neulasta boosts patients' immune systems, decreasing the risk of infections and allowing them to tolerate higher doses of chemotherapy. Neulasta is a longer-acting version of Neupogen, requiring less-frequent injections. Neulasta is also significantly more expensive than Neupogen, and more profitable for Amgen as a result.

Immunology

Enbrel

Enbrel, which was acquired with Amgen's buyout of Immunex in 2003, is used to treat Rheumatoid Arthritis (see Arthritis drug market), Psoriasis, and a number of other rheumatological conditions. Enbrel is a low margin product for Amgen; it's expensive to make and the cost of making it eats up a much greater portion of sales than for Amgen's other drugs. In addition, profits are split with Pfizer (PFE), which owns half the rights to Enbrel since its purchase of Wyeth.[4]

Trends and Forces

Generic Drug Competition for Biologics

Biologic drugs are much harder to replicate than small molecule drugs, and current legislation makes it very difficult for competitors to produce generic versions of the drug. However, proposed new legislation may pave a pathway for generic biologics, which if approved will affect the arthritis market by enabling the entry of generic competition which will lower prices and decrease the overall market size.[6] Such legislation already exists in the European Union.[7] Generic biologics are more expensive to manufacture than their small-molecule counterparts, and will likely sell at a higher price. In addition, there will be a higher barrier to entry as manufacturing expertise and clinical proof are required at higher levels. As such, Amgen is well positioned to maintain its market share, since it is relatively protected against generic competition, unlike more traditional pharmaceutical companies.

National Coverage Decision

On July 30, 2007, the Centers for Medicare and Medicaid Services (CMS) announced a National Coverage Decision (NCD) which affects the reimbursement policies of many of Amgen's anemia drugs, in particular Aranesp. In order to qualify for reimbursement under the new policy, chemotherapy patients must have hemoglobin levels below 10 grams per decileter. Amgen estimates that most patients taking its anemia drugs do not meet this criteria, so as a result of this new policy, fewer patients will be treated with its drugs. As of now, no health insurance policies have completely adopted the NCD, but may do so in the near future. Amgen has submitted an appeal to the CMS to reconsider the NCD, increasing the hemoglobin target to cover more patients. The outcome of the NCD is especially important for the company because the majority of product sales are related to anemia and oncology. Amgen routinely spends more money on lobbying annually than any other pharmaceutical/biotech company.[8]

Tightening FDA Regulations

I am making this up <--- REALLY?

Beginning in 2009, the FDA implemented a series of reforms that include stricter monitoring of drug adverse events, more funding for the agency, stronger ability to force product recalls, more scientific expertise within the agency, more transparency. While the tightened regulations and increased transparency will eventually improve the overall quality of pharmaceutical products, companies will have to adjust to the stricter standards and stronger enforcement.[9]

Competition in the pharmaceutical industry lies mostly in specific drug markets. For example, a new diabetes drug is not going to have any effect on an existing cholesterol drug, no matter how successful it is. As a result, financial data on the pharmaceutical companies do not tell the whole story. Instead, it may be more appropriate to analyze Amgen's competitors by each drug market (See section on Major Drugs and Industry Trends).